### Feld v Viceroy Devices Corp. 2024 NY Slip Op 32583(U) July 23, 2024 Supreme Court, New York County Docket Number: Index No. 651902/2023 Judge: AndreaMasley Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001(U), are republished from various New York State and local government sources, including the New

York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.

### [FILED: NEW YORK COUNTY CLERK 07/23/2024 12:53 P~ NYSCEF DOC. NO. 87



### SUPREME COURT OF THE STATE OF NEWYORK COUNTY OF NEWYORK: COMMERCIAL DIVISIONPART

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MICHAEL FELD, INDEX NO. Plaintiff, MOTION DATE

- V - INDEX NO. 651902/2023 RECEIVED NYSCEF: 07/23/2024

651902/2023

VICEROY DEVICES CORPORATION and STEPHEN ELLIS, MOTION SEQ. NO. 004

Defendants.

-----------------------------------------------------------------------------------X HON. ANDREA MASLEY: DECISION+ORDERON MOTION

Thefollowing e-filed documents, listed by NYSCEF document number (Motion 004) 68, 69, 70, 71, 72, 74, 75, 77 were read on this motion to/for DISMISS In his unverified April 18, 2023 complaint, plaintiff Michael Feld claims to be a cofounder ofdefendantViceroy Devices Corporation (Viceroy) who was improperly terminated from Viceroy's employment and accuses his co-founder, defendant Stephen Ellis, ofshareholder oppression. Plaintiffasserts thirteen causes ofaction: (1) shareholder oppression; (2) violation of his right to an annual shareholder distribution; (3) common law dissolution ofViceroy; (4) dissolution pursuantto BCL § 1104-a; (5) payment forthe fair value ofshares; (6) appointment ofa receiver; (7) conversion; (8) unjust enrichment; (9) accounting; (10) declaratoryjudgmentthat plaintiff is a 10.34% shareholder; (11) breach offiduciary dutyagainst Ellis; (12) constructive trust; and (13) breach ofcontract. Defendants answered and asserted counterclaims, which were dismissed, and 13 affirmative defenses, which do not include assertion ofthe forum selection clause.

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### [FILED: NEW YORK COUNTY CLERK 07/23/2024 12:53 PM] INDEX NO. 651902/2023 NYSCEF DOC. NO. 87 RECEIVED NYSCEF: 07/23/2024
(NYSCEF Doc. No. [NYSCEF] 37, December 14, 2023 Answerwith Counterclaims; NYSCEF 78, May5, 2024 Decision.) In the notice of motion, defendants move to dismiss the complaint in its entirety under CPLR 3211 (a) (2) and (7). A party may attackthe court's "almost limitless subject matterjurisdiction" under CPLR 3211 (a) (2). (John R. Higgitt, Prac Commentaries, McKinney's Cons Laws of NY, C3211 :11.) On a CPLR 3211 (a) (7) motion to dismiss, the court must "acceptthe facts as alleged in the complaint as true, accord plaintiffs the benefit ofevery possible favorable inference, and determine only whetherthe facts as alleged fit within any cognizable legal theory." (Leon vMartinez, 84 NY2d 83, 87-88 [1994] [citations omitted].) "[B]are legal conclusions, as well as factual claims which are either inherently incredible orflatly contradicted by documentary evidence" cannot survive a motion to dismiss. (Summit Solomon 

### & Feldesman vLacher, 212 AD2d 487,487 [1st Dept 1995] [citation omitted].) However, in their memoranda of law, defendants fail to address the third, fourth, sixth, seventh, ninth, and thirteenth causes ofaction. Therefore, defendants' motion is denied as to those claims. Defendants' motion to dismiss the action, because it belongs in Utah based on a forum selection clause in a NondisclosureAgreement (NOA) (NYSCEF 70, NOA

### ,i 9) is rejected. Defendantswaived the defense by participating in this action since May4, 2023. (See Jiangsu Jintan Liming Garments Factory vEmpire lmpot1s Group, Inc., 2017 NY Slip Op 30469[U], *13-14 [Sup Ct, NY County 2017].) Defendants fail to cite

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### [FILED: NEW YORK COUNTY CLERK 07/23/2024 12:53 PM] INDEX NO. 651902/2023 NYSCEF DOC. NO. 87 RECEIVED NYSCEF: 07/23/2024

any law otherwise. 1 Defendants' request to amend the complaint to add such a defense to their answer is improper in the absence ofa notice of motion orcross motion. (NYSCEF 69, Defendants' Memorandum of Law at 3-4.) On December 14, 2023, defendants filed an answerwithout asserting the forum selection clause. (NYSCEF 37, Answerwith Counterclaims.) Defendants' statement in support ofthe request that the "answerwas onlyfiled a few weeks ago," is false. (NYSCEF 69, Defendants' Memorandum of Law at 4.) Counsel's excuse that he did not have the NOA atthe time the answerwas filed is undermined by the counterclaim in the answerfor breach ofthe NOA. (NYSCEF 72, Ford3 aff

### ,i 9.) 4 Defendant's reliance on CPLR 3211 (a) (2) is also procedurally incorrect. "An enforceable forum selection clause does not deprive a New York Court ofsubject matterjurisdiction overan action brought here in contravention of the clause." (Higgitt, Prac Commentaries, CPLR C3211:11, citing Lischinskaya v Carnival Corp., 56 AD3d 116, 118 [2d Dept 2008].) A defendant looking to enforce a forum selection clause should employ CPLR 3211 (a) (1). (See Higgitt, Prac Commentaries, CPLR C3211:10.) Counsel's affirmation filled with the attorney's opinions is also improper on a motion to dismiss; the purpose ofsuch an affirmation is limited to filing documents in support ofa motion to dismiss under CPLR 3211 (a) (1). (See HeftervElderserve Health, Inc., 134 AD3d 673, 675 [2d Dept 2015].)

1 Defendants are reminded to read and complywith the Commercial Division Rules and the Part 48 procedures. (Rules ofCommercial Div ofSup Ct [22 NYCRR 202.70 (g)] rule 16; Part 48 Procedures 

### ,i 5.) Parties are required to include a table ofcontents and table ofauthorities in their briefs. (Uniform Rules for Trial Cts [22 NYCRR] § 202.8-b [b].) 3Adam Ford is defendants' nowformer attorney. (NYSCEF 85, June 28, 2024 Decision and Orderon Motion to be Relieved.) 4 Defendants are reminded that exhibits are to be numbered not lettered. (Part 48 Procedures 

### ,i 5 [E].)

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### [FILED: NEW YORK COUNTY CLERK 07/23/2024 12:53 P~ NYSCEF DOC. NO. 87 INDEX NO. 651902/2023 RECEIVED NYSCEF: 07/23/2024

The court also rejects defendants' argument that plaintiff lacks standing to assert the first, second and fifth causes ofaction because they are derivative, not direct claims, and plaintiff has no standing to bring derivative claims under Utah law. First, these are not derivative claims. Rather, in Utah, shareholder oppression is a private cause of action. Oppressive conduct is "a continuing course ofconduct, a significant action, or a series ofactions that substantially interfereswith the interests ofa shareholder as a shareholder." (Utah Code Ann§ 16-10a-1901 [1].) "A shareholder ofa closely held corporation who is injured by oppressive conduct may bring a private cause ofaction against the closely held corporation." (Id.§ 16-10a-1902 [1].) Accordingly, defendants' standing argument is rejected, though it was waived in any case because defendants failed to raise it in a pre-answer motion orthe answer. (Rimberg vHorowitz, 206 AD3d 832, 834 [2d Dept 2022].) Plaintiff has stated a claim for oppression in that he asserts that termination of his employment interfereswith his shareholder rights because ofan agreementwith Ellis that employment and ownership are somehow intertwined. (NYSCEF 2, Complaint

# ,m 24-25, 41.) Utah Code Annotated § 16-10a-1901 (2) (a) provides that: "'Oppressive contact' may include: (a) termination ofa shareholder's employment." Defendants' factual assertion otherwise is an issue for discovery. The court notes that the second and fifth causes ofaction are not separate causes ofaction but remedies for shareholder oppression under Utah law. (See Utah Code Ann § 16-10(a)-1902 [2] [a], [b].) Viceroy's financial condition is irrelevant to whetherthis cause ofaction is viable
or not. Finally, defendants cite no case law in support oftheir interpretation of Utah law.

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### [FILED: NEW YORK COUNTY CLERK 07/23/2024 12:53 P~ NYSCEF DOC. NO. 87 INDEX NO. 651902/2023 RECEIVED NYSCEF: 07/23/2024

Defendants' motion to dismiss the eighth cause ofaction for unjust enrichment is denied because it is a premature factual attack on the claim. Plaintiffasserts that he is owed money by defendants. Whether Ellis is owed wages, orthe company made distributions to Ellis and not plaintiff, are issues for discovery. The elements ofan unjust enrichment claim are that the "defendant (1) received a benefit, (2) appreciated
or had knowledge ofthis benefit, and (3) retained the benefit under circumstances that would make it unjustfor the defendant to do so." (HuntervFinau, 2024 UT App 17, 

### ,i 38, 545 P3d 294, 305 [2024], certdenied2024 WL 3297374 [Utah 2024].) Defendants fail to raise any relevant legal arguments. Defendants' motion to dismiss the tenth cause ofaction for a declaratory judgment as to the numberof shares plaintiffowns is denied. Again, defendants' factual challenges are irrelevant and inappropriate for a motion to dismiss. Defendants' motion to dismiss plaintiff's eleventh cause ofaction for breach of fiduciary duty because the claim is derivative, not direct, is denied. Under Utah Code Annotated § 16-10a-840, officers and directors have the following duties to shareholders: "(1) Each director shall discharge the director's duties as a director, including duties as a memberofa committee, and each officerwith discretionary authority shall discharge the officer's duties underthat authority: (a) in good faith; (b) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (c) in a mannerthe directoror officer reasonably believes to be in the best interests ofthe corporation

.... (4) A directoror officer is not liable to the corporation, its shareholders, or any conservator or receiver, or any assignee orsuccessor-in-interestthereof, for any action taken, or anyfailure to take any action, as an officer or director, as the case may be, unless: (a) the director or officer has breached orfailed to perform the duties ofthe office in compliance with this section; and (b) the breach orfailure to perform constitutes gross negligence, willful misconduct, or intentional infliction of harm on the corporation orthe shareholders."

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### !FILED: NEW YORK COUNTY CLERK 07/23/2024 12 :53 PM! NYSCEF DOC. NO. 87

Plaintiffalleges: INDEX NO. 651902/2023 RECEIVED NYSCEF: 07/23/2024

"226. Ellis placed his own interests ahead ofthose ofthe minority shareholder and egregiously committed acts and/or omissions as setforth above in violation ofhis fiduciary obligations. 227. Ellis acted in bad faith involving intentional misconduct and knowing violations ofthe law. Ellis also personally gained afinancial profitto which he was not legally entitled. 228. By committing the acts and omissions as setforth above, Ellis failed to act with the care, skill, prudence, and diligence required by law and, thus, failed to discharge the fiduciary duty he owed to Plaintiff. 229. As a directand proximate result of Ellis' fiduciary breaches as setforth above, Plaintiff has sustained substantial damages. 230. Defendants have acted in willful disregard of Plaintiff's rights and in so acting towards Plaintiff, their conduct shocks the conscience ofthe public and large and warrants an imposition ofpunitive damages." (NYSCEF 2, Complaint, 

# ,m 226-230.) Regardless ofwhetherthe claim is derivative or direct, plaintiff mayassertthis claim under Utah lawwhich allows "a minority shareholder in a closely held corporation to proceed directly against corporate officers." (Aurora CreditServices, Inc. vLiberty W. Dev., Inc., 970 P2d 1273, 1281 [Utah 1998].) As to defendants' objection that plaintiff cannot prove his claim, the motion is denied. Defendants' motion to dismiss the twelfth cause ofaction for a constructive trust is granted in the absence ofopposition. Accordingly, it is ORDERED thatthe motion is granted, in part, to the extentthat the twelfth cause ofaction for a constructive trust is dismissed, and the balance ofthe motion is denied.

7/23/2024

DATE ANDREA MASLEY, J.S.C. CHECKONE:
APPLICATION: CHECK IF APPROPRIATE:

# ~ CASE DISPOSED GRANTED**□** DENIED SETTLE ORDER INCLUDES TRANSFER/REASSIGN NON-FINAL DISPOSITION GRANTED IN PART SUBMIT ORDER FIDUCIARYAPPOINTMENT 651902/2023 FELD, MICHAELvs. VICEROY DEVICES CORPORATION ET AL Motion No. 004

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